Exam 6: Time Value of Money

A stream of equal payments at regular time intervals that goes on forever is called a non-ending stream.

If you invest $1,000 today at 8% interest compounded monthly, how much money will you have in 1 year?

The cash flow projected in a perpetuity is defined as a:

What is the effective rate of interest on a CD that has a nominal rate of 9.5 percent with interest compounded monthly?

If the present value of a perpetuity is $6,000 and the discount rate is 8%, how large are the payments?

The ____value of an imbedded annuity is moved back in time as an amount.

The time value of money means that a dollar today is worth less than a dollar at any time in the future.

In six years, your daughter will be going to college. You wish to have a fund that will provide her with $10,000 at the end of each of her four years in college. How much must you deposit today if the money will earn 10 percent in each of the 10 years?

You have borrowed $130,000 to buy a new motor home. Your loan is to be repaid over 15 years at 8% compounded monthly. How much total interest will you save over the life of the loan by paying an extra $200 per month loan?

Preferred stock dividends are:

How much will you have at the end of 5 years in a European vacation account if you deposit $200 a month, and the account earns 12 percent compounded monthly?

Your bank pays a quoted annual (nominal) rate of 12%. However, it compounds interest every week (52 times a year). What is the effective annual rate (EAR)?

A perpetuity has a cash flow of $20 and a discount rate of 10%. What is the value of the perpetuity?

A project has a life of ten years starting today. What is the present value today of a $1,000 annuity that begins at the end of the third year and continues until the end of the tenth year, given a 12% discount rate.

Holding all other variables constant, an increase in the ____ will increase the future value of an annuity.

Designs Now is opening a showcase office to display and sell its computer designed poster art. Designs expects cash flows to be $120,000 in the first year, $180,000 in the second year, $240,000 in the third year. If Designs uses 11 percent as its discount rate, what is the present value of the cash flows?

The First National Bank has agreed to lend you $30,000 today, but you must repay $42,135 in 3 years. What rate is the bank charging you?

A sinking fund represent a series of payments made into an account that is dedicated to paying off a bond's principal at maturity.

What would you be willing to pay today to receive $5,000 at the end of each year for the next 10 years if interest is earned at a rate of 8% compounded annually?

Which set of payments is the most valuable given 12% APR interest?